Financing receivables primarily consist of client loan and installment payment receivables (loans), investment in sales-type and direct financing leases (collectively referred to as client financing receivables) and commercial financing receivables. Loans are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are for terms up to seven years. Investment in sales-type and direct financing leases relate principally to the company’s Infrastructure products and are for terms ranging generally from two to six years. Commercial financing receivables, which consist of both held-for-investment and held-for-sale receivables, relate primarily to working capital financing for dealers and remarketers of IBM products. Payment terms for working capital financing generally range from 30 to 90 days.

A summary of the components of the company’s financing receivables is presented as follows:

* The carrying value of the receivables classified as held for sale approximates fair value.


	Client Financing Receivables
	Client Loan and		Investment in
	Installment Payment		Sales-Type and		Commercial Financing Receivables
(Dollars in millions)	Receivables		Direct Financing		Held for		Held for
At December 31, 2022:	(Loans)		Leases		Investment		Sale*		Total
Financing receivables, gross	$	8,875	$	4,023	$	299	$	939	$	14,136
Unearned income		(439)		(351)		—		—		(790)
Unguaranteed residual value		—		422		—		—		422
Amortized cost	$	8,437	$	4,094	$	299	$	939	$	13,769
Allowance for credit losses		(108)		(60)		(5)		—		(173)
Total financing receivables, net	$	8,329	$	4,034	$	293	$	939	$	13,596
Current portion	$	5,073	$	1,485	$	293	$	939	$	7,790
Noncurrent portion	$	3,256	$	2,549	$	—	$	—	$	5,806

* The carrying value of the receivables classified as held for sale approximates fair value.

The company has a long-standing practice of taking mitigation actions, in certain circumstances, to transfer credit risk to third parties. These actions may include credit insurance, financial guarantees, nonrecourse secured borrowings, transfers of receivables recorded as true sales in accordance with accounting guidance or sales of equipment under operating lease. Sale of receivables arrangements are also utilized in the normal course of business as part of the company’s cash and liquidity management.

Financing receivables pledged as collateral for secured borrowings were $283 million and $349 million at March 31, 2023 and December 31, 2022, respectively. These borrowings are included in note 12, “Borrowings.”

Transfer of Financial Assets

The company has an existing agreement with a third-party investor to sell IBM short-term commercial financing receivables on a revolving basis. In addition, the company enters into agreements with third-party financial institutions to sell certain of its client financing receivables, including both loan and lease receivables, for cash proceeds. There were no material client financing receivables transferred for the three months ended March 31, 2023 and 2022.

The following table presents the total amount of commercial financing receivables transferred.


(Dollars in millions)
For the three months ended March 31:	2023		2022
Commercial financing receivables:
Receivables transferred during the period	$	2,233	$	1,989
Receivables uncollected at end of period*	$	780	$	724

*	Of the total amount of commercial financing receivables sold and derecognized from the Consolidated Balance Sheet, the amounts presented remained uncollected from the business partners as of March 31, 2023 and 2022.

The transfer of these receivables qualified as true sales and therefore reduced financing receivables. The cash proceeds from the sales are included in cash flows from operating activities. The impacts to the Consolidated Income Statement, including fees and net loss associated with the transfer of commercial financing receivables for the three months ending March 31, 2023 and 2022 were $24 million and $11 million, respectively.

Financing Receivables by Portfolio Segment

The following tables present the amortized cost basis for client financing receivables at March 31, 2023 and December 31, 2022, further segmented by three classes: Americas, Europe/Middle East/Africa (EMEA) and Asia Pacific. The commercial financing receivables portfolio segment is excluded from the tables in the sections below as the receivables are short term in nature and the current estimated risk of loss and resulting impact to the company’s financial results are not material.


(Dollars in millions)
At March 31, 2023:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	6,394	$	3,082	$	1,561	$	11,037
Allowance for credit losses:
Beginning balance at January 1, 2023	$	88	$	60	$	20	$	168
Write-offs		0		0		—		0
Recoveries		—		0		0		0
Additions/(releases)		0		(13)		(1)		(13)
Other*		4		0		0		4
Ending balance at March 31, 2023	$	93	$	47	$	19	$	159


(Dollars in millions)
At December 31, 2022:	Americas		EMEA		Asia Pacific		Total
Amortized cost	$	7,281	$	3,546	$	1,704	$	12,531
Allowance for credit losses:
Beginning balance at January 1, 2022	$	111	$	61	$	23	$	195
Write-offs		(20)		(3)		(2)		(25)
Recoveries		1		0		4		5
Additions/(releases)		(5)		6		(4)		(3)
Other*		2		(5)		(2)		(4)
Ending balance at December 31, 2022	$	88	$	60	$	20	$	168

* Primarily represents translation adjustments.

When determining the allowances, financing receivables are evaluated either on an individual or a collective basis. For the company’s policy on determining allowances for credit losses, refer to note A, “Significant Accounting Policies,” in the company’s 2022 Annual Report.

Past Due Financing Receivables

The company summarizes information about the amortized cost basis for client financing receivables, including amortized cost aged over 90 days and still accruing, billed invoices aged over 90 days and still accruing, and amortized cost not accruing.


					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At March 31, 2023:	Cost		> 90 Days*		Accruing*		Accruing		Accruing**
Americas	$	6,394	$	183	$	107	$	15	$	76
EMEA		3,082		47		16		16		32
Asia Pacific		1,561		26		9		3		17
Total client financing receivables	$	11,037	$	257	$	133	$	33	$	124


					Amortized		Billed		Amortized
	Total		Amortized		Cost		Invoices		Cost
(Dollars in millions)	Amortized		Cost		> 90 Days and		> 90 Days and		Not
At December 31, 2022:	Cost		> 90 Days*		Accruing*		Accruing		Accruing**
Americas	$	7,281	$	272	$	198	$	22	$	74
EMEA		3,546		52		8		1		46
Asia Pacific		1,704		20		3		1		17
Total client financing receivables	$	12,531	$	344	$	208	$	23	$	137

* At a contract level, which includes total billed and unbilled amounts for financing receivables aged greater than 90 days.

** Of the amortized cost not accruing, there was a related allowance of $121 million and $122 million at March 31, 2023 and December 31, 2022, respectively. Financing income recognized on these receivables was immaterial for the three months ended March 31, 2023 and 2022, respectively.

Credit Quality Indicators

The company’s credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings. The credit quality of the customer is evaluated based on these indicators and is assigned the same risk rating whether the receivable is a lease or a loan.

The following tables present the amortized cost basis for client financing receivables by credit quality indicator at March 31, 2023 and December 31, 2022, respectively. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators reflect mitigating credit enhancement actions taken by customers which reduce the risk to IBM. Gross write-offs by vintage year at March 31, 2023 were not material.


(Dollars in millions)	Americas				EMEA				Asia Pacific
At March 31, 2023:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2023	$	295	$	231	$	157	$	130	$	115	$	48
2022		2,840		764		1,130		618		617		84
2021		1,001		262		381		133		189		58
2020		401		194		170		127		183		37
2019		205		60		94		78		103		18
2018 and prior		72		68		23		42		77		31
Total	$	4,815	$	1,579	$	1,955	$	1,127	$	1,285	$	276


(Dollars in millions)	Americas				EMEA				Asia Pacific
At December 31, 2022:	Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D		Aaa – Baa3		Ba1 – D
Vintage year:
2022	$	3,316	$	1,097	$	1,447	$	704	$	799	$	96
2021		1,197		323		451		159		203		65
2020		559		217		258		158		210		49
2019		251		91		161		99		127		22
2018		128		26		42		16		84		21
2017 and prior		32		45		14		38		12		17
Total	$	5,482	$	1,800	$	2,373	$	1,173	$	1,434	$	269

Modifications and Troubled Debt Restructurings

The company did not have any significant modifications due to financial difficulty during the three months ended March 31, 2023. The company did not have any significant troubled debt restructurings during the year ended December 31, 2022.